This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Buffett's Goldman Investment Is Locked In

Updated from 12:19 p.m. EDT

Warren Buffett's $5 billion investment in Goldman Sachs (GS - Get Report) is looking like a great deal for Berkshire Hathaway (BRK-A) shareholders - and one Goldman isn't getting out of anytime soon.

Rochdale Securities analyst Richard Bove argued in a report on Saturday that Goldman should pay back Buffett's investment ahead of the government $10 billion preferred equity stake, as the terms of his deal are more costly to Goldman shareholders. However, a Goldman Sachs spokesman pointed out that under the terms of the government investment through the Troubled Asset Relief Program, companies must pay back the government before they pay back other shareholders. That includes preferred shareholders like Buffett.

On Sept. 23, Berkshire Hathaway made a $5 billion preferred equity investment in Goldman paying a 10% dividend. As part of the deal, Buffett's company has the right to buy an additional $5 billion in common shares at $115 per share, below the roughly $129 a share the company's stock was trading for on Monday.

The following month, the U.S. government took a $10 billion preferred stake in Goldman yielding 5% under the TARP's Capital Purchase Program (CPP).

Bove on Monday issued a new note clarifying his views.

"The point still stands," Bove wrote in an email message to . "Also, the issue is the same -- do not dilute shareholders to eliminate TARP so that management can be paid more. Earn the money and then pay TARP back out of earnings."

First Niagara (FNFG) on Monday said it was issuing new stock to repay the government's $184 million TARP investment and several other small banks also have sought to get out from under the government's thumb.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
C $52.90 0.00%
BAC $15.64 0.00%
GS $197.99 0.00%
JPM $62.60 0.00%
MS $37.36 0.00%


DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs